Archer v Nubuke Investments LLP & Ors

A term should be implied into a contract only where the instrument, read as a whole and against its relevant background, would reasonably be understood to mean that the term formed part of the agreement. A broad obligation to permit third-party due diligence will not be implied where its content is uncertain, potentially burdensome, and capable of exposing confidential information to unknown or competing parties.

Where loss depends on hypothetical action by a third party, the claimant must establish a real or substantial chance of that action, rather than a speculative possibility. If that threshold is met, the court values the chance by reference to the benefit that would have resulted, discounted for the likelihood of occurrence.

The claimant was a member of the first defendant limited liability partnership. Following his expulsion, his interest was transferred under the partnership agreement’s pre-emption provisions after the auditors valued it at nil.

He alleged that the defendants had breached implied and express contractual duties by failing to provide information and access needed for two potential purchasers to conduct due diligence. He claimed damages for the lost opportunity to sell his interest. The LLP counterclaimed for repayment of drawings treated as a loan, payable out of future profits.

The issues were whether the alleged contractual obligations existed or had been breached, whether any breach caused recoverable loss, and whether the drawings became repayable when the claimant left the LLP.

1. Claim dismissed. The proposed implied terms requiring the LLP and its members to facilitate due diligence by a potential purchaser were not necessary to give the agreement business efficacy. Applying AG of Belize v Belize Telecom [2009] 1 WLR 1988, the question was what the agreement, read as a whole against its background, would reasonably be understood to mean.
2. The proposed term was inherently uncertain. Due diligence could involve unrestricted requests for documents, accounts, and access to management. It was also objectionable because the LLP was not the vendor, might have no financial interest in the transaction, and could be required to disclose confidential information to unknown persons or competitors. The term was therefore not implied. The court added that, even if a narrower obligation existed, reasonable refusal could include requiring confidentiality arrangements and establishing that an offeror was bona fide, unconnected and capable of completion.
3. The express obligation of utmost good faith concerned transactions and dealings relating to the LLP’s business and affairs. It did not require disclosure for a third-party purchase of a member’s interest. In any event, good faith would not automatically require disclosure of all requested material, particularly material belonging to the fund.
4. The alleged offer from Camelot was only a statement of interest subject to contract and due diligence, not a compliant offer under the agreement. The claim therefore failed on breach as well as on causation.
5. Applying Allied Maples v Simmons & Simmons [1995] 1 WLR 1602, the court had to decide whether, in the counterfactual world without breach, either potential purchaser had a real or substantial chance of making a compliant offer before the valuation date. On the evidence, neither would probably have made any offer. The claim would therefore have failed for want of causation even if breach had been established.
6. The counterclaim also failed. The agreement at the members’ meeting made the drawings repayable only out of future profits. It did not make them immediately repayable on departure, and there was no gap requiring implication or creative construction.

Both the claims against all defendants and the counterclaim were dismissed.